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Cat Lady's Big Win Against IRS
Could Help Volunteers

When the Internal Revenue Service didn't purr over her tax deductions for her volunteer work as a cat rescuer Jan Van Dusen fought back and won.

Her victory is a case that could inspire more Americans to volunteer -- and increase charitable tax deductions by millions.

The "ruling sets a precedent for this type of deduction," says Philip L. Liberatore a CPA at IRS Problem Solvers, Inc. based in Southern California. "It's possible to not necessarily have a tax contribution letter but still have tax deductible expenses that are charitable in nature. This ruling will encourage other taxpayers to volunteer as a result it has the potential to add up to millions of dollars in deductions."

Which is what Van Dusen did for years as a foster parent to cats. However, it wasn't until her 2004 tax return that Van Dusen decided to claim the expenses she incurred while caring for as many as 70 cats in her house.

As a part of the nonprofit organization Fix Our Ferals Van Dusen participated in the Trap-Neuter-Return program to capture feral or semi-feral cats to be spayed and neutered. At times, this resulted in "foster cat" situations, which means cats staying at Dusen's residence.

Liberatore compares it to the foster child system. "The foster parent takes in the foster child and are able to deduct expenses" that exceed what they're getting paid, says Liberatore.

"I had a little more than I intended to have because I thought cats would continue to go up for adoption and they didn't," says Van Dusen.

But, when the family law attorney claimed expenses of $12,068 to care for the cats housed in her residence she found herself in US Tax Court battling the IRS.

The sheer number of cats earned her the nickname "the cat lady" in the media. In court, Van Dusen says she was painted as the "crazy" cat lady.

"Those of us who do animal rescue think of it as an avocation. It is not a hobby; it is more of a calling. It is definitely community service," says Van Dusen. "We go places where it is scary to be, and talk to people who are scary to talk to, to try to turn things around so that the animals are safe. If you are crazy, you cannot be effective. You need all of your faculties for this work."

At her home, she ran a well-oiled machine, shelling out about $1,000 a month for food, liter and flea control for the feral and semi-feral cats.

When the IRS denied her deductions, Van Dusen took them to court and the judge sided with the cat lover. In the ruling, Van Dusen was able to use copies or other documentation for expenses below $250. For expenses that exceeded $250, the court denied a deduction because Van Dusen didn't have a letter from the charity at the time aknowledging her gift.

The ruling has implications for volunteers and many animal rights organizations are celebrating the win.

"The ASPCA supports this ruling because it will enable animal lovers to do more for animals without having to worry about how it will impact their personal finances," Gail Buchwald, the ASPCA's Senior Vice President of Adoptions, wrote in a statement. "How much one spends in a single rescue can vary greatly from several hundred dollars to several thousand dollars, depending on the capacities of the shelters in the local community and the condition of the animal, among other factors."

It's a mission that Van Dusen wanted to define when she decided to take the IRS to court. "I wanted to establish the taxability of these expenses," says Van Dusen. "It seems to me they should be deductible but they were hung up on the idea that the volunteer work had to be done in humane society building and not in a home."

The ruling "is kind of narrow in a sense there's not that many situations where people are volunteers for charity and incur charities from their pockets," says Bruce R. Hopkins, a senior partner at Polsinelli and Shughart.

"If I had the facts of this case only and looked at it I would have thought the court would have denied the deduction," he says.

But, others consider it a victory. "It's good news for the taxpayer. We have victory where there wasn't a deduction contribution letter sent to the taxpayer but the taxpayer was still able to take the deduction, " Liberatore said. "It's also a victory for nonprofits because now there's more leniency and more people will be willing to give in a different way. It will encourage volunteers to increase their service to nonprofits."

The People for the Ethical Treatment of Animals also lauded the court ruling.

"This precedent-setting ruling appears to be good news for the thousands of nonprofit volunteers who spend money out of pocket to further the goals of the local animal shelters and rescue organizations they volunteer for," PETA's Associate Director of the Cruelty Investigations Department Stephanie Bell said in a statement to ABCNews.

"These volunteers can now deduct their documented expenses at the end of the year, which puts them in a better position to keep volunteering their time as well as properly meeting the needs of the animals they are fostering."

"PETA would have concerns about any rescue organization or shelter that is allowing as many as 70 cats to be housed in the custody of a single person because of the potential for animal hoarding and substandard living conditions, but that is a matter separate from tax law and this particular ruling," said Bell.

For taxpayers volunteering at 501(c)3 organizations, Liberatore says, "keep track of any and all expenses in volunteering or paying out of their own funds to sustain a mission of a nonprofit organization.

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January 2010 Newsletter

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10 Tax-Saving Strategies Heading into 2010

Wall Street Journal December 2009

The Wall Street Journal quoted Philip L. Liberatore on the following tax savings strategy: "Make your January mortgage payment in December to get an additional payment of mortgage interest to deduct on your 2009 tax return".

Spiritual Answers to Money Issues

Learn to make better choices with your hard-earned dollars with "God,
Money & You: 101 Spiritual Answers to Your Financial Questions" (DLM
Publishing, $18) by Phil Liberatore. Using God-centered principles, the
book shows you how to become financially secure. Liberatore is a CPA in
La Mirada, who focuses on general accounting, as well as IRS issues,
including tax resolution.

Avoid Tax Pitfalls When Selling a Rental Property

Capital gains tax and depreciation can dilute a homeowner's profit
Cyberhomes November 2009

Cyberhomes quoted Philip L. Liberatore on the following question:

What expenses related to selling can I deduct?

"Whatever is on the closing statement would be deductible as part of the process of selling the house," says Phil Liberatore, CPA, of IRS Problem Solvers in La Mirada, Calif. "This includes any state or local transfer or selling taxes, legal fees, advertising expenses, Realtor's commission and appraisal fees".